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Cosmetics Company Agrees to Pay US$135M to Settle FCPA Claims

8 May 2014

Mayer Brown Legal Update

On May 1, 2014, it was announced that Avon Products, Inc., reached a settlement with US regulators over a long-standing federal probe into whether the cosmetics company paid bribes in China and other countries to gain favors. New York-based Avon agreed to pay $135 million in fines and other costs to the Justice Department and Securities and Exchange Commission to resolve a bribery investigation under the Foreign Corrupt Practices Act (“FCPA”).

Avon, the world’s largest direct seller of cosmetics, said it would pay $68 million to the Justice Department and $67 million to the SEC. As part of the agreement, the Justice Department would defer criminal prosecution for three years, after which charges could be dismissed if Avon complies with the agreement. The company also agreed to install a compliance monitor for 18 months and to self-monitor for an additional 18 months.

In addition, the company said a subsidiary in China will plead guilty in connection with alleged violations of the FCPA’s books and records provision. The final resolution still requires SEC and court approval.

The investigation, which dates back to 2008, looked at gifts and improper payments that Avon allegedly made to Chinese officials to get licenses to sell its products there. It has been reported that the investigation was sparked by a whistleblower’s letter to then Chief Executive Officer Andrea Jung. Avon was among the first companies to obtain a license to sell products directly to consumers—the cornerstone of its business model—after Chinese authorities ended a ban on direct sales in 2006.

Reports state that the six-year investigation has already cost the company approximately $340 million in legal fees and other expenses. Avon reportedly tried to settle the matter in June 2013 for $12 million, an offer which was rebuffed by the SEC. In December, Avon announced that it planned to cut 650 jobs as part of an effort to cut $400 million in costs by 2016.

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